Australia must get house in order: Newman

Former Australian Stock Exchange chairman Maurice Newman says Australia has eight years to get its house in order before the global withdrawal of government stimulus packages has potentially serious economic consequences.

Speaking at an industry lunch in Sydney, Mr Newman said Australia, Canada, Brazil, Russia, India and China were in a good economic position, but the United States, Japan and the United Kingdom faced significant issues.

“Three years after the global financial crisis the world is still on life support and the recovery at best looks feeble," he said.

“It would be nice to pretend we can get through this unscathed but there is a $US1.65 trillion budget deficit and $US144 trillion in unfunded liabilities. The US dollar could cease to be the reserve currency – we are talking serious dislocations, and I want Australia to be prepared for such an event."

Mr Newman said Australian companies needed to continue reducing debt on their balance sheets and the economy needed to return to a structural fiscal balance as opposed to merely a cash surplus.

“We need to look at where we are spending and what can be avoided."

The structural budget balance excludes factors such as resources booms and is regarded as the best measure of the budget’s underlying strength. While the headline budget balance is forecast to return to surplus in 2012-13, Treasury estimates budget will be in structural deficit until 2019-20.

He warned many economies would be forced to take a haircut as heavy government stimulus packages were unwound over coming years.